2013 (6) TMI 477 - AT - Income Tax

Registration u/s 12A denied - CIT rejected the registration as no charitable activities were carried on by the trust and further there were cash credits in each depositors bank account from whom trust had obtained interest free loans - Held that - The objects of the trust are imparting of education which is included under the definition of charitable object u/s 2(15) and CIT has not made any adverse findings to that effect. The trust has also been issued letter of intent for establishment of new technical institution vide letter dated 30.3.2009 issued by Al India council for Education. The trust is also in the process of constructing buildings on acquired land which is apparent from balance sheet dated 31.3.2009 which shows the value of work in progress at Rs.210.33 lakhs. Sub clause (a) & (b) of section 12AA makes it clear that the CIT has to satisfy himself about the genuineness of the activities of the trust and also about the objects of the trust. The scope of power of CIT is thus limited in this regard to make enquiries as he may deem fit & not required to look either into the nature of income of the assessee or its application if the object of the trust or institution falls within the definition of charitable purpose u/s 2(15). Also the assessee has submitted names and address of the persons along with their PAN numbers & addresses from whom unsecured loans were obtained and their statements on oath were also recorded by Addl. CIT. Therefore, for the reason that there was cash credit in the account of depositors before advancing loan to the assessee, registration u/s 12AA cannot be denied. In favour of assessee.

Summary

Issues:
Registration under section 12A of the Income Tax Act, 1961 refused by CIT.

Analysis:
The judgment revolves around the refusal of registration under section 12A of the Income Tax Act, 1961 to a trust by the Commissioner of Income Tax (CIT). The trust, founded by Smt. Jaswanti Devi, aimed to establish educational institutions like engineering, technical, management, and medical colleges. The CIT rejected the registration primarily due to concerns regarding the genuineness of the trust's activities and the sources of investment. The CIT highlighted that the trust had not conducted significant charitable activities beyond organizing two camps in 2008-09. Additionally, the CIT raised questions about the cash credits in the bank accounts of depositors who provided interest-free loans to the trust.

The Appellate Tribunal emphasized that under section 12A, the CIT must ensure the genuineness of the trust's activities and the alignment of those activities with the trust's charitable objectives. The Tribunal noted that the trust had received a letter of intent for establishing a technical institution and was in the process of constructing buildings for educational purposes. The Tribunal also considered the submissions made by the trust regarding the names, PAN numbers, and addresses of individuals providing unsecured loans. The Tribunal referred to legal precedents to support the argument that the trust cannot be expected to explain the source of the source in cases of cash credits in bank accounts.

The Tribunal disagreed with the CIT's decision and directed the CIT to grant registration to the trust under section 12AA of the Act. The Tribunal's decision was based on the understanding that the trust's activities were genuine and aligned with its charitable objectives. The Tribunal highlighted that at the registration stage, the focus should be on the charitable nature of the trust and the genuineness of its activities. The judgment emphasized that the CIT's power to make inquiries is limited to ensuring the trust's activities are in line with its objectives and are not merely a facade. Ultimately, the appeal filed by the trust was allowed, and the order was pronounced in favor of the trust on 24th May 2013.